The African Real Estate Society
And
The Commonwealth Association of Surveying and Land Economy (Africa
and Europe)
Sustainable Human Settlements for Economic and Social Development
Conference Livingstone Zambia 2nd to 5th May 2007
Current rural valuation practice: A survey of valuers and
agribusiness managers on farm management and sustainable
rural land use
Professor Chris Eves,
Lincoln University
Commerce Division
Phone:
64 3 3252811 (ext 8694)
Fax:
64 3 3253847
Email:
evesa@lincoln.ac.nz
Key words
Rural land, rural economics, rural land values, farm management, land use, rural land
investment, sustainable land use.
Abstract
Over the past 20 years the nature of rural valuation practice has required most rural
valuers to undertake studies in both agriculture (farm management) and valuation,
especially if carrying out valuation work for financial institutions. The additional farm
financial and management information obtained by rural valuers exceeds that level of
information required to value commercial, retail and industrial by the capitalisation of
net rent/profit valuation method and is very similar to the level of information
required for the valuation of commercial and retail property by the Discounted Cash
Flow valuation method. On this basis the valuers specialising in rural valuation
practice have the necessary skills and information to value rural properties by an
income valuation method, which can focus on the long term environmental and
economic sustainability of the property being valued.
This paper will review the results of an extensive survey carried out by rural property
valuers in Australia, in relation to the impact of farm management on rural property
values and sustainable rural land use.
A particular focus of the research relates to the increased awareness of the problems
of rural land degradation in Australia and the subsequent impact such problems have
on the productivity of rural land. These problems of sustainable land use have resulted
in the need to develop an approach to rural valuation practice that allows the valuer to
factor the past management practices on the subject rural property into the actual
valuation figure. An analysis of the past farm management and the inclusion of this
1
data into the valuation methodology provides a much more reliable indication of farm
sustainable economic value than the existing direct comparison valuation
methodology.
Sustainable Rural Land Use
Rural land in Australia is the most extensive property class based on total area
occupied, with the total area of land dedicated to agricultural production being 455.5
million hectares in 2000. Since 1990, the area of land in Australia used for
agricultural production has ranged from a low of 440.1 million hectares to a high of
469.0 million hectares (Australian Bureau of Agricultural and Resource Economics
[ABARE], 2002, 2006).
As Australia has a total land area of 768 million hectares, agricultural land use
represents over 60% of the total land area in Australia. The area of land used for
hobby farm operations is 11 million hectares, with residential, industrial and
commercial property accounting for less than 1% of the total Australian land area
(Macquarie Publications, 2000).
Rural industries in Australia are still a significant contributor to the Australian
economy, in relation to total income earned, employment and export income. The
current initiatives by the Department of Agriculture, Fisheries & Forestry (2001) and
the various State governments to increase the amount of value adding for rural
produce exports is also seeing an increase in the percentage of the balance of
payments that is attributed directly and indirectly to rural production in Australia.
However, continued rural production is reliant on the land being maintained and past
and potential environmental issues need to be continually addressed by the rural land
owner and rural communities to ensure the continued viability of agricultural
production (Department of Environment and Water resources, 2006).
Issues such as climate change and sustainable land are no longer potential future
problems but are current issues facing agricultural production throughout the world,
with many major agricultural producing countries now focusing considerable research
efforts and funding in the areas of sustainable rural land use (MAF, 2006).
In more recent years the focus of sustainable agriculture and rural land use has been
expanded from the issues of land degradation to cover the long term sustainable
nature of the agricultural economy and the industries that are either directly or
indirectly linked to agricultural production
According to Countryside Agency 2001, the aims of a long term economic and
environmentally sustainable agriculture industry and rural property market is where:




There are prosperous agricultural based industries producing high quality food
and products
There is a wide range of rural businesses and services both on and off the farm
The workforce is skilled and valued
The basic resources of soils and water are conserved effectively and degraded
elements have been improved
2




Native wildlife is preserved
Historic buildings and sites are conserved and used sensitively
Local communities are vibrant and socially inclusive
Society recognises the need for and supports public investment in rural land
management
These ideals are also affected by urban and industrial factors that are recognised as
being the major causes of climate change, with both current and longer term
ramifications for rural land agricultural production (MAF, 2006).
Research Methodology
A survey of NSW rural valuers in both private practice and those valuers employed by
the major rural financial institutions (Agribusiness) has been carried out to:

The level and type of economic and production data collected by rural valuers
when they inspect rural property

Details on the impact rural valuers consider that various levels of management
have on rural property values

The extent that they consider various aspects of rural property management
has on rural property values
A comprehensive survey was sent to all private rural valuation offices in NSW rural
locations, as well as to agribusiness managers with the major banks and financial
institutions involved in rural lending.
The survey covered questions in relation to:









The number of rural valuations carried out in the last 12 months
Confirmation of the average number of rural valuations
The type of rural properties valued
The percentage break up of rural valuations carried out on a land use basis
The number of rural valuation inspections carried out where the full economic
analysis of the property was required
Type of statistical data collected on the inspection of the rural property
Current market perspective on premiums or discounts on well managed or
poorly managed properties
Saleability of well managed properties and any extended sale periods that
could apply for poorly managed properties
Valuers estimates of the effect of various rural property technical and financial
management practices on farm profitability and land values.
Although there are approximately 100 valuers working in the rural areas of NSW,
many of these individual valuers work for small to medium size private and
institutional valuation firms. There were a total of 62 surveys mailed out to these
firms and institutions, with 43 completed surveys, representing a response rate of
3
69%. In some instances the responses advised that there was not sufficient data in the
office to adequately answer the final survey question (question 8). This resulted in 35
responses for the final question that dealt with the issues of the impact of farm
management and management practices on rural land profitability and rural property
values. However, this reduced number of fully completed survey responses still
represents a 56% response for this section of the survey.
Results
1
Farm Management & Rural Property values
Over the past decade there have been a number of studies and government reports
dealing with the environmental and management factors associated with rural
property in Australia. This section of the survey was designed to initially determine if
valuers in NSW considered that a well managed farm attracts a premium in the rural
property market and the alternate argument of whether a poorly managed farm is
considered to be of less value than the average rural property in the same location.
Figure 1 shows that 37 valuation/agribusiness firms considered that a well managed
rural property attracts a premium in the rural property market compared to an average
managed property in the same location. There were 6 firms who considered that
management of the rural property did not impact on rural property values. These
responses were all in rural coastal locations of NSW, where there is an alternative
market for the majority of rural properties that are sold. In all the mixed farming and
pastoral grazing areas valuers considered that a well managed property would have a
higher value than the average and poorly managed farm.
Figure 1:
Premiums and Discounts; Rural Property Management Levels
40
Number of Valuation/Agribusiness offices
35
30
25
20
15
10
5
0
Premium for well managed farms
Discount for poorly managed farms
Yes
No
Although 37 valuation firms considered that a well managed farm would be of higher
value compared to an average farm in the same location, only 30 valuation firms
4
considered that a poorly managed farm would have a lower value compared to the
average rural property in the same location. Again, the larger number of firms (13)
who indicated that there would be no discount in value for poorly managed farms in
their areas of operation for farms that were generally located in the coastal
grazing/intensive farming areas of NSW. This suggests that in rural locations where
there is an alternative use for rural land (hobby farm, rural residential or residential),
the market does not consider a poorly managed rural property to be a detrimental
market factor (Refer to Figure 2 and 3).
Figure 2:
NSW Rural Property Premiums: Land Use
Number of Valuation/Agribusiness Offices
30
25
20
15
10
5
0
Yes
No
High Rainfall
Yes
No
Mixed farming
Yes
No
Pastoral Grazing
Premium for Well Managed farms
In the predominant rural areas of mixed farming and pastoral grazing 94% of valuers
stated that a well managed property attracted a premium in the rural property market
and 83% of valuers in the same area reported that a poorly managed rural property
would suffer a discount in the market. Figures 2 and 3 also show that the pastoral
areas of NSW are the rural locations where valuers consider that management of the
farm has the greatest impact on the value of the rural property. Only one valuation
office in this rural land use classification considered that management had no impact
on the potential value of a pastoral rural property.
The survey also requested that if the valuation office considered that management
would either provide a premium or discount in that particular rural property market,
the extent of the premium or discount should be quantified. Although 36
valuation/Agribusiness offices stated that a well managed rural property would attract
a premium in the rural property market, the range in this premium varied. Only one
valuation office was not able to quantify this premium, with 80% of valuers
considering that a well managed rural property would have a premium of between 1 to
20% above the average rural property in the same area, with the majority considering
the premium to be in the range of 1 to 10%.
5
Figure 3
NSW Rural Property Discounts: Land use
Number of Valuation/Agribusiness offices
25
20
15
10
5
0
Yes
No
High Rainfall
Yes
No
Yes
Mixed farming
No
Pastoral Grazing
Discount for Poor Farm management
Table 1:
Premium
Discount
Extent of Rural Property Premiums and Discounts: Rural
Property management
Unknown
1
1
1 to 10%
17
7
11 to 20%
12
19
21-30%
6
3
A further 16% of valuation offices considered that a well managed rural property
would attract a premium of over 20% compared to the average property in the same
area. The higher premiums were considered to apply in the mixed farming areas.
Although the number of valuation offices that considered that a poorly a managed
rural property resulted in a discount in the market was less than the number who
considered that better rural properties had a premium in the market, Table 1 shows
that the majority (63%) considered that the market discount for a poorly managed
rural property would be in the range of 11 to 20%. This compares to only 33% of
respondents who considered that the premium for a well managed rural property
would be in the range of 11-20%. Only 10% of valuation offices considered that a
poorly managed rural property would have a discount of 20% greater than the average
property in the same area. Again, the rural land use type that valuers considered was
the most likely to suffer a discount for poor management was mixed farming and
pastoral grazing.
2.
Impact of farm management on farm values &profitability
The final question in the survey asked each valuation/Agribusiness office to define
what increase in profitability and overall rural property value each of the offices
would apply to a rural property for well above average, above average, below average
6
and well below average for the following rural property characteristics or rural
property management characteristics:












Sustainable Management practices
Farm Management Ability
Condition of Property Improvements
Financial Management Ability
Condition of Plant & Equipment
Condition of Livestock
Levels of Crop/Livestock Production
Quality of Livestock
Quality & Condition of Pastures
Quality & Condition of Pastures
Availability of Farm Statistics
Availability of Economic Statistics
In each case, the valuation office was asked to assign a percentage difference in value
for the various levels of management based on the average level of management for
each characteristic being zero.
Table 2:
Sustainable Management Practices
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
0
5
13
10
7
3
11
19
2
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
3
9
21
2
0
0
5
13
10
7
All survey respondents agreed that a rural property that has been managed on the
basis of sound long term sustainable management practices results in a premium for
the well above average managed farm, with 49% of valuers stating that the well above
average sustainable managed property being worth between 11% and 30% more than
an average sustainable managed property in the same location. These same rural
valuers also considered a well below average property (sustainable management)
suffered a discount between 11 and 30%, compared to the average property in the
same location.
There were three valuation firms who considered that an above average or below
average sustainable managed property would have no impact on value compared to
the average farm in the same location. Table 3 also shows that no valuation firm
considered that the premium or discount for a rural property would be greater than
20%, if the sustainable management ability of the farmer was above or below average.
7
In the case of above average or below average sustainable farm management, over
50% of valuation firms considered the premium or discount would be in the range of
6 to 10%. These results show the increasing importance of environmental
management on rural property values.
Table 3:
Farm Management Ability
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
0
0
17
13
5
4
6
23
2
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
5
4
21
5
0
0
4
8
15
8
All valuers considered that well above average farm management ability had a
positive impact on the value of a rural property. 51% of those valuation/ agribusiness
firms surveyed considered that the market places a minimum 11% premium on a very
well managed farm compared to an average farm in the same location. However, the
same level of premium did not apply if the level of farm management was only
slightly above average. In this case the majority of respondents considered that the
increase in value would only be between 6-10% (refer to Table 3).
Table 3 also shows that valuers consider that a well below average managed property
has a significantly lower value compared to the average rural property in the same
area, with 66% of valuation firms stating that well below average farm management
ability can result in a property discount between 11 and 30%.
Table 4 shows the variation in value between the condition of improvements on an
average rural property to rural properties where the condition of improvements are
well above average, above average, below average and well below average. This table
shows that valuers consider the overall condition of improvements on the rural
property as being an indicator of the condition and value of the total rural property.
However, even in cases where the improvements on a rural property are considered to
be well above average the majority of valuers (63%) consider the potential increase in
overall property values is only in the range of 1 to 10%.
Although better than average condition of improvements only add slightly to overall
farm values, Table 4 shows that valuers consider the condition of improvements as a
better indicator of poor farm management and subsequent impact on value, with 83%
of valuers indicating that well below average condition of improvements would
reflect a decreases rural property value between 6 and 30%.
8
Table 4:
Condition of Property Improvements
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
0
1
21
10
3
6
8
18
3
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
8
9
17
2
0
2
4
14
10
5
Unlike, the previous farm management and value indicators, the financial
management ability appears to have a lower impact on the overall value of the rural
property. Table 5 shows that 63% of survey respondents considered that well above
average and above average financial management ability would only reflect a 0 to 5%
increase in rural property value, with a similar percentage of valuers considering
below average farmer financial management resulting in a reduced rural property
range of 0-5%.
Table5:
Financial Management Ability
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
9
10
9
5
2
15
7
10
3
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
15
6
9
4
1
7
1
20
2
5
However, when well below average farm financial management is considered as an
indicator of rural property value 77% of respondents considered that this lower level
of management would result in a decrease in rural property values between 6 and
30%.
Table 6 represents the various survey opinions in relation to the link between rural
property values and the condition of farm plant and equipment. These results show
that the majority of valuers do not consider that a farm with above average or below
average farm equipment and plant reflects an increase or decrease in rural property
values, even in mixed farming areas where the value of farm plant is significant.
9
Table6:
Condition of Plant & Equipment
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
11
15
6
2
1
18
8
6
3
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
19
6
8
2
0
12
10
9
2
2
Tables 7 and 8 also show that the actual quality and condition of livestock on a rural
property does not have as great an impact on farm values as do factors such as farm
management ability and environmental management ability. Only 15
valuation/agribusiness offices considered that well above average and above average
condition and quality of livestock on a farm indicated a potential increase in value
greater than 5%.
Table 7:
Condition of Livestock
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
10
10
8
3
4
15
8
9
4
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
16
10
8
1
0
10
1
19
4
1
However, valuers do consider that well below average condition of livestock is a good
indicator of a reduced value of the rural property, with 69% considering a farm with
well below average livestock having an overall reduction in value of 6 to 30%.
This reflects the opinion that the actual condition of livestock can be linked to
seasonal conditions rather than the quality or management of the rural property.
10
Table 8:
Quality of Livestock
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
Table 9:
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
14
10
4
3
4
19
8
4
4
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
21
5
8
1
0
16
9
4
3
3
Levels of Crop/Livestock Production
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
5
3
17
6
4
10
7
16
2
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
10
3
18
3
1
5
2
14
9
5
In relation to well above and well below the average rural property in any particular
location, the majority of valuers responding to the survey stated that the actual level
of crop or livestock production would for these levels of management increase or
decrease the value of that rural property by 6 to 10%, with 14 valuers stating that poor
levels of crop and livestock production would result in a decrease in property values
of 11-30%. However, most valuers indicated that below average or above average
levels of production would not result in the same increases or decreases in property
values. 10 valuers indicated that there would be no difference in values, while
approximately 50% of respondents stating the difference in value would be in the
range of 6-10% (refer to Table 9).
According to Table 10, the survey shows that the quality and condition of farm
pastures is reflected in the overall value of the rural property. Respondents (94%)
indicated that a property with well above average quality and condition of pastures
would have a value at least 6% greater than a similar property in the same location
with average quality and condition of pastures. A slightly lower percentage of
respondents (89%) stated that well below average quality and condition of pastures
would suggest a decrease in value of at least 6%.
11
Table 10:
Quality & Condition of Pastures
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
1
1
23
5
5
8
8
17
1
1
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
8
6
19
2
0
2
2
19
10
2
In relation to above or below average quality and condition of pastures, valuers in
NSW consider that there is a less substantial increase or decrease in value for a
property that has above average or below average pastures. The survey statistics show
that 94% of respondents consider above average pastures indicate an increase in value
of less than 10%, with a similar decrease in value for rural properties with below
average pastures.
Table 11:
Quality & Condition of Crops
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
5
5
18
7
0
11
7
17
0
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
13
5
13
2
2
4
6
12
11
2
It is interesting to note the difference in responses for the question relating to the
quality and condition of crops. In the case of pastures, valuers stated that well above
or well below average pastures would result in a significant change in value compared
to the rural property with average pastures, this is not reflected in the case of crops.
Only two valuation firms considered that well below average crops would suggest a
decrease in value between 20 to 30% and no valuation/agribusiness firms considered
that well above average crops would indicate a value increase between 20 and 30%.
Approximately 33% of those surveyed considered that a farm with above average
crops or below average crops would have any difference in value compared to a rural
property with average crops.
12
Table 12:
Availability of Farm Statistics
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
8
6
17
1
3
17
8
8
1
1
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
14
6
11
4
0
6
4
16
5
4
Tables 12 and 13 show the increase or decrease in value that valuers attributed to the
availability of farm production statistic and farm economic statistics compared to the
level of farm production and economic data available from the average farmer for any
given rural land use. These tables show that the majority of respondents (over 80%)
considered that the above average ability to supply farm production and economic
statistics would only result in an increase in value from 0% to 5%. A similar number
of valuers considered that the availability of less then average farm statistics would
only result in a decrease in value of 0 to 5%.
Table 13:
Availability of Economic Statistics
Management
Status
Well Above
Average
Above
Average
Below
Average
Well Below
Average
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
21-30%
Increase
7
13
10
3
2
21
9
5
0
0
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
21-30%
Decrease
17
6
7
4
1
10
7
10
3
5
However, in cases where the farmer can provide well above average statistics on farm
production and economics the en these particular farms generally have a value6 to
20% higher than the average farmer. Although this farm management factor does not
relate directly to overall technical or financial management ability, the response to
this survey question does suggest that the level of records kept by the individual
farmer can reflect in the overall value of the property management.
13
The following two sections of the report will discuss these individual results on a
collective basis and then provide an average across the five levels of farm
management and production levels.
Management Summary
The increase or decrease in rural property value, in comparison to the value of the
average property in each valuer’s areas of operation, is shown in Tables 14 to 17.
Each table lists the various management and rural property value characteristics, as
well as a range of percentage value increases or decreases that each
valuation/agribusiness office could apply for rural properties that were either well
above or above the average property in the areas they worked or for properties that
were well below or below average for the rural properties in their areas.
Better than average management
Table 14 is a summary of the percentage difference between the average rural
property and the rural property that is well above average in the same land use and
location.
Table 14:
Percentage Increases in Rural Property Value for Well Above
Average Management (Base Average Management)
Property/Management
Characteristics
Sustainable
Management practices
Farm Management
Ability
Condition of Property
Improvements
Financial
Management Ability
Condition of Plant &
Equipment
Condition of Livestock
Levels of
Crop/Livestock
Production
Quality of Livestock
Quality & Condition
of Pastures
Quality & Condition
of Pastures
Availability of Farm
Statistics
Availability of
Economic Statistics
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
> 20%
Increase
0
5
13
10
7
0
0
17
13
5
0
1
21
10
3
9
10
9
5
2
11
15
6
2
1
10
10
8
3
4
5
3
17
6
4
14
10
4
3
4
1
1
23
5
5
5
5
18
7
0
8
6
17
1
3
7
13
10
3
2
14
For each characteristic the valuation/agribusiness office provided a range of increased
values/profitability over and above the average rural property. A zero value could be
given if the office perceived that a well above average classification did not result in
any increase in value/profitability over and above the average rural property level of
management.
From Table 14, it can be seen that valuers considered the most important factors
determining any increased value in rural property for well above average management
were sustainable farming practices, farm management ability, condition of farm
improvements and quality and condition of pastures. For all these characteristics
virtually all valuers considered that the well above average farmers’ property would
have a value in excess of 6% higher than the average farmer in the same location,
with the average percentage in value for these specific characteristics being over 15%
higher than the average rural property.
Table 14 also shows that valuers considered that the management characteristics of
condition of plant and equipment, condition of livestock and quality of livestock
having limited effect on determining the value of a rural property. With these
characteristics up to 14 valuation offices considered that a rural property where these
characteristics were well above average would not actually result in any increased
level of value compared to the rural property were these characteristics were at the
average level of management.
On average most valuers considered that a well above average rural property would
have a value approximately 6-10% higher than the average property in the same area.
Table 15 is a summary of the percentage difference between the average rural
property and the rural property that is above average in the same land use and
location. For each characteristic the valuation/agribusiness office provided a range of
increased values/profitability over and above the average rural property. A zero value
could be given if the office perceived that a well above average classification did not
result in any increase in value/profitability over and above the average rural property
level of management.
From Table 15, it can be seen that valuers considered the most important factors
determining any increased value in rural property for well above average management
were sustainable farming practices, farm management ability, condition of farm
improvements and quality and condition of pastures. However, the increase in value is
considerably less than that stated for the well above average property. In the case of
the above average farmer up to eight valuers stated that there is no difference between
the average rural property value and the above average rural property for these
management characteristics. Again, for all these characteristics virtually all valuers
considered that the well above average farmers’ property would have a value in
excess of 6% higher than the average farmer in the same location, with the average
percentage in value for these specific characteristics being approximately8% higher
than the average rural property.
Table 15 also shows that valuers considered that the management characteristics of
condition of plant and equipment, condition of livestock and quality of livestock
15
having limited effect on determining the value of a rural property. With these
characteristics up to 19 valuation offices considered that a rural property where these
characteristics were above average would not actually result in any increased level of
value compared to the rural property were these characteristics were at the average
level of management.
Table 15:
Percentage Increase in Rural Property Value for Above
Average Management (Base Average Management)
Property/Management
Characteristics
Sustainable
Management practices
Farm Management
Ability
Condition of Property
Improvements
Financial
Management Ability
Condition of Plant &
Equipment
Condition of Livestock
Levels of
Crop/Livestock
Production
Quality of Livestock
Quality & Condition
of Pastures
Quality & Condition
of Pastures
Availability of Farm
Statistics
Availability of
Economic Statistics
0%
Increase
1-5%
Increase
6-10%
Increase
11-20%
Increase
> 20%
Increase
3
11
19
2
0
4
6
23
2
0
6
8
18
3
0
15
7
10
3
0
18
8
6
3
0
15
8
9
4
0
10
7
16
2
0
19
8
4
4
0
8
8
17
1
1
11
7
17
0
0
17
8
8
1
1
21
9
5
0
0
In the case of the above average rural property there were only two occasions where a
single valuer attributed a higher value of over 20% for the above average rural
property to the average rural property and that was for quality and condition of
pastures and availability of farm statistics.
Less than average management
Table 16 shows that valuers consider that the below average rural property, compared
to the average rural property in the same location, does not always result in a decrease
in value. In all but four characteristics (sustainable management, farm management
ability, condition of improvements and quality of pastures) more than 10 valuation
offices considered that there was no decrease in value. Only in the characteristics of
financial management ability, levels of crop and livestock production, quality of
pastures and availability of economic statistics did any valuers consider the decrease
16
in value would be over 20%, but the numbers of valuers with these opinions were low
(1, 1, 2 and 1 respectively)
Table 16:
Percentage Decrease in Rural Property Value for Below
Average Management (Base Average Management)
Property/Management
Characteristics
Sustainable
Management practices
Farm Management
Ability
Condition of Property
Improvements
Financial
Management Ability
Condition of Plant &
Equipment
Condition of Livestock
Levels of
Crop/Livestock
Production
Quality of Livestock
Quality & Condition
of Pastures
Quality & Condition
of Pastures
Availability of Farm
Statistics
Availability of
Economic Statistics
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
> 20%
Decrease
3
9
21
2
0
5
4
21
5
0
8
9
17
2
0
15
6
9
4
1
19
6
8
2
0
16
10
8
1
0
10
3
18
3
1
21
5
8
1
0
8
6
19
2
0
13
5
13
2
2
14
6
11
4
0
17
6
7
4
1
In the areas of environment management, farm management ability, condition of
pastures and condition of improvements the majority of valuers considered that there
would be a 6-10% decrease in value for a below average rural property compared to
the average managed property (range 7.5% to 8.5%).
Well below average management
As was the case with the well all the levels of management discussed above, valuers
considered that even with well below average management of the rural property in the
areas of condition of livestock and condition of livestock there was a limited
reduction in value compared to the average property. However, Table 17 shows that
in all other characteristics of farm management valuers consider that there is a
significant discount in values between the average rural property and the well below
average rural property. This is especially the case with environment management,
farm management ability, and condition of improvements, where more than 50% of
respondents stated that the decrease in value would be in excess of 10%. Table 17
shows that more valuers responding to the survey considered that well below average
management would result in decreases of over 20% in value for each of the
17
characteristics than those who considered that the well above average farm would be
over 20% higher than the average rural property.
Table 17:
Percentage Decrease in Rural Property Value for Well Below
Average Management (Base Average Management)
Property/Management
Characteristics
Sustainable
Management practices
Farm Management
Ability
Condition of Property
Improvements
Financial
Management Ability
Condition of Plant &
Equipment
Condition of Livestock
Levels of
Crop/Livestock
Production
Quality of Livestock
Quality & Condition
of Pastures
Quality & Condition
of Pastures
Availability of Farm
Statistics
Availability of
Economic Statistics
0%
Decrease
1-5%
Decrease
6-10%
Decrease
11-20%
Decrease
> 20%
Decrease
0
5
13
10
7
0
4
8
15
8
2
4
14
10
5
7
1
20
2
5
12
10
9
2
2
10
1
19
4
1
5
2
14
9
5
16
9
4
3
3
2
2
19
10
2
4
6
12
11
2
6
4
16
5
4
10
7
10
3
5
The following two tables are a summary of the survey results, which have been
analysed on a scale of 0 to 5 to determine an average percentage difference for each of
the rural property management and production indicators discussed in the survey. The
rating scales for the four levels of management (well above average, above average,
below average and well below average) are as follows:
0%:
1-5%:
6-10%:
11-20%:
21-30%:
increase or decrease above or below average:
increase or decrease above or below average:
increase or decrease above or below average:
increase or decrease above or below average:
increase or decrease above or below average:
0
1
2
3
4
The average score for each survey question has then been used to determine the actual
percentage difference for each indicator, at each level of management. These are
shown in Tables 18 and 19.
18
Table 18:
Rural Property Financial and Economic Farm Management
Attributes and Indicators
Property
Characteristics
Sustainable
Management
practices
Farm
Management
Ability
Condition of
Property
Improvements
Financial
Management
Ability
Availability of
Farm Statistics
Availability of
Economic
Statistics
Average (%)
Well Above
Average
Management
(%)
Above
Average
Management
(%)
Below
Average
Management
(%)
Well Below
Average
Management
(%)
15.0
8.0
8.0
15.0
17.0
8.5
8.5
18.0
14.0
7.5
7.0
13.0
7.5
5.0
5.5
9.5
8.0
4.5
5.5
9.5
7.0
2.5
5.0
8.0
11.4
6.0
6.6
12.2
Table 18 summarises the survey response questions relating to the financial and
economic factors that determine farm profitability and differentiate the various levels
of farm management. This table shows that based on financial and economic farm
management the well above average managed rural property would be valued at an
average of 11.4% higher than the average farm in the same rural location. As the level
of management ability falls to an above average level the difference between the
value of the above average rural property and the average rural property falls to 6.0%
The premium for well managed rural properties is not quite as high as the discount
that valuers apply to the below average or well below average properties. This study
shows that based on their financial and economic indicators of a rural property,
valuers and agribusiness managers consider the below average farm is worth 6.6%
less than the average rural property, with the well below average rural property being
12.2% less than the average rural property in the same location.
Table 19 represents the differences in value above or below the average farm based on
the four alternate levels of management ability for the physical and technical aspects
of rural property management. This table shows that these rural property factors do
not have the same impact on rural property values as the financial and economic
indicators of rural property management. For the well above average rural properties
there is an average increase in value over the average rural property of 7.9%. The
increase in value for the above average rural property is 5.2%. In relation to below
average management the discount for below average or well below average
management rural property to the average rural property is 5.0% and 8.25%
respectively.
19
Table 19:
Rural Property Technical and Physical Farm Management
Attributes and Indicators
Property
Characteristics
Condition of
Plant &
Equipment
Condition of
Livestock
Levels of Crop &
Livestock
Production
Quality of
Livestock
Quality &
Condition of
Pastures
Condition of
Plant &
Equipment
Average
Well Above
Average
Management
(%)
Above
Average
Management
(%)
Below
Average
Management
(%)
Well Below
Average
Management
(%)
5.5
4.0
4.0
6.0
7.5
5.5
4.0
8.0
10.0
6.5
7.5
12.0
6.0
4.0
3.5
5.5
13.0
7.0
7.0
12.0
5.5
4.0
4.0
6.0
7.9
5.2
5.0
8.25
When the economic and physical farm performance indicators are combined to
provide an overall average for the full survey questions, the difference in value for
well managed rural properties compared to poorly managed rural properties becomes
very apparent.
Table 20 provides the final summary of the survey questions relating to the
differences in value for rural property based on the various levels of farm
management.
Table 20:
Rural Property Management Level Summary
Management Level
Well Above Average
Above Average
Below Average
Well Below Average
Premium/Discount (%)
9.7
5.6
5.8
10.2
Volatility (%)
4.0
1.9
1.8
3.9
The survey respondents have provided a comprehensive analysis of the impact of all
levels of rural property management on the difference in price for farms in the high
rainfall costal and tablelands, mixed farming and pastoral regions of NSW.
20
Based on these average results valuers and agribusiness consultants consider that a
very well managed rural property would have a 9.7% higher value than the average
property in the same location and land use. As the level of management declines to
above average only, this price (value) difference between the average farm and the
above average farm decreases to 5.6%.
According to the survey findings, respondents consider that the average difference in
value (rural land price) is more pronounced in relation to below average and well
below average farm management. The survey findings indicate that a below average
managed rural property will be on average 5.8% less than the average managed farm,
11.4% less than the above averaged managed rural property and 15.5% less than the
above average managed rural property.
Table 21:
Average
Farm Value
($total)
500,000
600,000
700,000
800,000
900,000
1,000,000
1,250,000
1,500,000
2,000,000
Rural Property Values: Management Variations
Well Below
Average
Management
($total)
449,000
538,800
628,600
718,400
808,200
898,000
1,122,500
1,347,000
1,796,000
Below
Average
Management
($total)
471,000
565,200
659,400
753,600
847,800
942,000
1,177,500
1,413,000
1,884,000
Above
Average
Management
($total)
528,000
633,600
739,200
844,800
950,400
1,056,000
1,320,000
1,584,000
2,112,000
Well Above
Average
Management
($total)
548,500
658,200
767,900
877,600
987,300
1,097,000
1,371,250
1,645,500
2,194,000
These differences in rural property values and the level of farm management is even
greater when the value of well below average rural property management is compared
to all other farm management classifications. The analysis of the survey show that a
well below average managed rural property is considered by valuers and agribusiness
managers to be 10.2% less than a similar type farm where management is at an
average level. When the well below average managed farm is compared to both an
above average and a well above average farm of similar land use the difference in
values are 15.8% and 19.9% respectively.
Table 21 shows that based on these results if an average rural property (size, level of
development and land use) in any given location has a specific value of say
$1,250,000, then the value of an adjoining or nearby rural property (similar size, level
of development and land use) should vary to this figure to reflect the management
ability of the rural property operator. In the given example a similar sized and land
use well above average farm in this location should be valued at a figure of
$1,371,000, whereas the well below average farm of similar size and land use would
only be valued at $1,122,000.
All rural valuers are aware of the role that farm management plays in the successful
operation of a rural property and this level of management is an important factor that
is considered when a rural property is valued. However, the survey also reveals that a
21
full economic analysis of the business component of a rural property is carried out
only in a limited number of cases, with the majority of valuers stating that such depth
of analysis is only required in less than 25% of rural valuations carried out. It will be
difficult for valuers who are not obtaining full farm economic data to assess the
financial management and net profit of any rural property they value for the purpose
of adopting an income valuation method.
However, the survey also shows that in cases, where a full economic analysis of the
farm is required the majority of rural valuers actually obtain a significant amount of
economic and financial data that could be used to determine a valuation based on an
income valuation method. Most rural valuers, when requested, obtain full production
data, financial information to determine both farm cash flows and average annual net
profits.
Conclusions
Valuers in rural locations undertake a varied range of property valuation work, with
the majority of valuers in rural locations doing less then 25 rural valuations a year.
Valuers in these rural areas carry out more urban valuation work than rural valuation
work.
The majority of rural property valuation instructions only request that a current
market value of the farm be assessed. Most valuers reported that a full economic
analysis of the rural property is only requested in 25% of valuation instructions.
Even in cases where a full economic analysis of the rural property is not requested,
rural property valuers will obtain data to assess the management ability of the farm
operator and data to determine the environmental aspects of the farm under current
and past management
All valuers reported that the environmental condition of the rural property has a
significant impact on the current and future value of that rural property. The majority
of rural valuers stated that poor environmental management would result in a decrease
in value, with good environmental farm management resulting in an increase in
property values.
Although not all rural valuation instructions required a full farm economic analysis,
the majority of rural valuers obtain sufficient data to assess the technical and financial
management ability of the farm operator. All valuers who are instructed to comment
on the economic viability of a rural property obtain all the data to analyse the
operational and financial performance of the farm. In such cases, the data collected is
sufficient to determine a return on real estate assets as well as a return on total farm
assets.
All valuers surveyed who do collect farm management and operations data stated that
an above average and a well above averaged farm would have a higher value in the
particular rural market when compared the average managed property in the same
location. The survey also found that a poorly managed farm has a greater detrimental
value compared to the average property in the same location.
22
The majority of respondents also stated that farm financial management performance
also impacts on the value of a rural property, with a better managed farm having a
greater value to both the average rural property and the various below average
managed rural properties.
The surveys and interviews have suggested that due to the low number of rural
properties that are valued annually on the basis of obtaining all financial and
economic performance data, it would not be feasible for the majority of rural valuers
to adopt an income valuation method for valuing rural property, as either a primary or
secondary valuation method.
However, the survey and interviews has shown that the small number of valuers who
do collect this required information on the rural property valuation inspection are
either currently using an income valuation method as a secondary (check) valuation
method, or would be able to do if requested by the instructing client.
Survey and interview results have also shown that any rural property valuation based
on an income valuation method, where the farm net profit is based on the
management ability of the operator (technical, financial and environmental) would
result in a variation in value of up to 20% when a well managed farm is compared to a
well below managed farm in the same location developed for the same rural land use.
References
Australian Bureau of Agricultural Resource Economics. (2002), Australian Farm
Survey Report. Australian Government Publishing Service, Canberra.
Australian Bureau of Agricultural Resource Economics. (2006), Australian Farm
Survey Report. Australian Government Publishing Service, Canberra.
Department of Environment and Water resources, (2006) Sustainable land
management. http://www.environment.gov.au/land/management/index.html
Kelly, J. D. (1958), The effect of seasonal conditions and falling commodity prices on
rural land values. The Valuer 15(4): 212-219.
Macquarie Publications. (2000), Macquarie World Atlas. Macquarie Publishing Pty
Ltd Sydney, Australia.
Ministry of Agriculture and Fisheries [MAF]. (2006). Sustainable land management
and climate change. MAF Policy
Ministry of Agriculture and Fisheries (2000) Constraints to farm level adoption of
new sustainable technologies and management practices in New Zealand pastoral
agriculture. www.maf.govt.nz/mafnet/rural-nz/sustainable-resourcesuse/landmanagement
The Counrtyside Agency (2001) A strategy for sustainable land management in
England. Countryside Agency publishing. West yorkshire
23